Monthly Archives: September 2015

An organisation can espouse the highest ethical standards but if these are not supported and enforced they are simply nice statements that look appealing. The challenge is to have the right levels of support and just enough enforcement.

Headline news in Australia over the last couple of weeks (with months to run) is the appalling treatment of franchisees and their staff by the 7-Eleven chain.  To survive (and in some cases profit) many 7-Eleven franchisees resorted to underpaying staff by a standard 50%.  The TV expose and press reports indicate multiple breaches of employment legislation, occupational health and safety legislation, corporations law and taxation legislation.  Most of the focus at the moment is on the students who allowed themselves to be trapped into the wages scam.  This post will suggest these people are not the ‘biggest losers’.

The whole 7-Eleven chain was benefitting from the scam.  Head office made more profit, the franchisees reduced their wage bill by up to 50% (their primary cost under the franchise arrangements) and the students received their reduced pay.  Whilst in some cases there may have been elements of coercion used to keep the students employed, everyone got into the deal voluntarily.

The major losers in this scam were people who rely on the workings of the law and run their businesses honestly.  Two major groups are the corner shop-keepers who paid the lawful minimum wage and saw their businesses destroyed because the 7-Eleven ‘model’ undercut costs illegally and the unemployed people who did not get jobs because they had the audacity to expect to be paid their legal entitlements.

People in these groups faced a major ethical dilemma, go out of business (or remain unemployed) or ‘bend the law’ to survive in completion with chain that was prepared to allow widespread malpractice.  Not an easy decision!

I would suggest the major failing was not the ethics of the 7-Eleven chain: the erosion of ethical standards is usually slow and insidious. The real problem appears to be the government agencies tasked with enforcing the law.  Over several decades government departments have been steadily stripped of resources and these days can only adequately respond to ‘major issues’ –  they are forced to assume ethical behaviour by most people most of the time and even when advised of blatant breaches will generally ignore the issue if it is considered minor.

One example we confront regularly is breaches of the Australian Competition and Consumer Act 2010 – one of the Act’s primary requirements is honesty in advertising, the advertised price of any goods of services should be the minimum price the consumer has to pay.  We routinely see Google advertisements targeted at our training market in Melbourne offering ultra cheap prices.  Click through to the related web page listing the training courses in Melbourne and the price increases, spend 15 minutes filling in registration forms and you eventually see the price you are required to pay (with all of the taxes and changes now added)!   This is a deliberate strategy by unethical organisations – the low price gets people onto their web site, and inertia keeps them there (particularly after spending effort on filling in the forms) so they end up paying far more than is necessary for an equivalent course.  The practice is so widespread, particularly with overseas based training providers, we regularly find people asking us if our prices are ‘real’ and ‘how much will they actually pay’ – the answer is simple, we conform to the law and charge the advertised price.

However, this was not an easy decision to make! We have had to reduce prices and increase advertising to attempt to off-set the illegal practices of others. Complaints to authorities go unheeded because they simply do not have the resources to deal with a relatively minor issue and business suffers.

When ethical standards start to slip several things tend to happen, ethical people move away to somewhere where their standards are not being challenged, less-ethical people move in and further degrade standards and many other people simply learn to ignore the problem (see The normalisation of deviant behaviours ). And once unethical or corrupt behaviour becomes normalised, reversing the situation is extremely difficult. Press reports suggest that some 7-Eleven franchisees who have been forced to pay proper wages are now using extortion to demand 50% of the money back from the employee (outside of the premises so the extortion is not recorded), or the worker loses his/her job.

At a national level one hopes the 7-Eleven furore when added to the construction of a refuelling wharf in the Tiwi Islands without environmental approval (the government agency did not have the resources to investigate in a timely way), the blatant abuse of the vocational training scheme by some commercial organisations and numerous other failures will cause a re-think of the way business and government approach regulation.

Certainly the removal of unnecessary bureaucracy, regulations and other forms of red tape is to be encouraged. However, if the government decides a regulation is desirable, proper and comprehensive enforcement should be automatically provided. The failure to enforce regulations penalises the honest, ethical organisations who feel obliged to comply; and advantages the dishonest who chose to breach the regulation and balance the low cost of getting ‘caught’ against the additional profits garnered from ignoring the provision. Prosecuting a few ‘rule breakers’ 5 or 6 years after the event is not an appropriate way to govern – the damage is already done.

What does this mean within organisations and projects?  Effective governance sets the ‘rules and objectives’ for the organisation (see: The Functions of Governance). Management and staff operate within those rules to achieve the objectives. A key element in a well designed governance framework is the feedback loop providing assurance of management accountability and compliance.  This loop needs three elements:

• A clear articulation of acceptable and unacceptable behaviours at all levels of the organisation, with senior leaders ‘walking the talk’.
• Proactive surveillance to identify issues and opportunities as early as possible backed up by effective improvement processes (see: Proactive Project Surveillance.
• Rigorous, but fair, enforcement processes to deal with breaches.

The last point is the most difficult to get right.  The system needs to be open and accountable, apply both natural justice and the ‘presumption of innocence’, deal with the root cause of the breach, avoid scapegoating, and be trusted.  One element is ensuring effective reporting and ‘whistle blowing’ processes are available so that people (both internal and external to the organisation) who believe there is an issue can raise the matter safely – its impossible to enforce rules if people in authority don’t know (or don’t want to know) about the breach.

The good news is that if these types of system are in place, the organisation will develop a self-reinforcing ethical culture.  Unethical people will leave to find somewhere easier for them making way for people who want to work in an ethical environment.  Fairly soon, everyone holds both themselves and other accountable.

However, this situation cannot be taken for granted! The presence of the surveillance and enforcement processes underpin these highly desirable behaviours.  If the organisation makes the same mistake the Australian governments have repeatedly made over the last 10 years of deregulation and simply ‘hope’ everyone will do the right thing it won’t take long for the slide into unethical behaviour to start.  Hope is not a strategy, good governance requires assurance that the organisation’s objectives are being achieved, and effective assurance needs both surveillance and enforcement capabilities.